US stock market volatility returned in the 1st quarter of 2018 with a vengeance. The January to February low selloff took most major averages down in the double-digit range (over 10% drop). The stock market peaked within days of President Trump’s State of the Union Message in which he claimed credit for the stock market high. In addition, the market was buffeted by the Trump tariff initiative and the departure of key White House personalities. Offsetting the negatives were the charm offensive of North Korea. And, there was a subsequent softening of the Trump tariff plan.
The market is reacting to the uncertainty around this president’s style. Meanwhile, the market is ignoring the strong earnings growth momentum and positive outcomes ahead because of the tax reform bill, the infrastructure plan and repatriation. We have written extensively about them. See: www.cumber.com. We are in the third month of the quarter on a bullish note. We rebalanced to a fully invested form after the February swoon and have sustained that position so far in our US stock market ETF accounts. We are overweight the banks and believe that a long upward repricing of financials lies ahead. The deregulation and legislative changes are favorable to banks. We still expect the S&P 500 index to cross 3,000 by the start of the new decade.